05 Dec

Daily Watch – Fuel subsidy “is back,” LSETF begins pilot scheme

  • Fuel subsidies are effectively back on the NNPC’s cards following the sharp rise in crude oil prices after OPEC agreed to cut production by 1.2 million barrels per day, on November 30. This effectively means that Nigeria’s current ₦145 per litre retail price template for petrol, set in May is obsolete. “We suspect that the importers, or at least the NNPC, are taking the hit on their books as a result,” analysts at FBN Quest said in a December 2 note. This is because “the higher spot price clearly feeds into the costs of importers of petroleum products.” The price of Brent crude rose 6 percent to $53.53 per barrel as at midday on Friday, from $50.47 per barrel on Wednesday, when OPEC and Russia agreed to cut output to 32.5 million barrels daily, 34.7 percent of global oil demand. The landing cost of petrol in Nigeria is ₦122.03 per litre, while distribution costs take total cost to ₦140/$, according to data from the PPPRA. This template was reached in May, when oil prices traded at an average of $45 per barrel. But with crude prices rising by 17.7 percent to $53 per barrel from $45, the landing cost of petrol now exceeds the retail price of ₦145 per litre, calculations by independent analysts show.
  • The relative stability of the naira witnessed at the interbank spot market last week is expected to continue in the week as the CBN continues its daily $1.5 million foreign exchange sales to banks. Foreign exchange sales to banks were crossed at a fixed rate of ₦304.5/$ from Monday to Friday while interbank market rate held steady at ₦305/$ from Monday-Friday, save for Wednesday when interbank closed at ₦305.25/$, according to a report by Afrinvest Securities Limited. At the parallel market, however, the local unit continues to trade with significant spread (within a range of ₦170-₦177) to the greenback as supply constraints and control measures drive rates higher. The naira closed the week at ₦482/$ in the parallel market compared with ₦475/$ on Monday, depreciating 1.5 percent week-on-week. At the FMDQ OTC derivatives market, the value of FX futures opened contract closed the week at $3.8 billion, higher than $3.6 billion in the previous week. Nigeria’s external reserves rose 3.3 percent in the month of November from $23.9 billion to $24.7 billion.
  • The NNPC/Total Exploration and Production Nigeria Limited Joint Venture has commenced supply of gas to the Alaoji Power Plant owned by the Niger Delta Power Holding Company within the Eastern grid domestic gas market. The development was sequel to the completion and start -up of the Obite-Ubeta-Rumuji pipeline (“O-U-R pipeline”) and the Northern Option Pipeline (“NOPL”) Projects by the NNPC/TEPNG Joint Venture in August 2016. The O-U-R Pipeline is a 42-inch gas pipeline, extending 45 km from Obite to Rumuji in Rivers State and will transport both domestic and export gas. The NOPL project consists of a 50 km, 24-inch gas pipeline (together with two above ground installations) which starts at the Oil Mining Lease (OML) 58 in Rivers State and ends at the Owaza node in Abia State. A statement from the company yesterday said the NOPL has the capacity to provide up to 300 million cubic feet of gas to the Eastern Grid Domestic Gas market, with Alaoji Power Plant taking up to 100MMscf/d to generate electricity while other users of domestic gas take up the rest.
  • The Lagos State Employment Trust Fund, enacted into law early this year, began on 18 November to “test its systems and processes” with a “pilot scheme” to “receive, consider and evaluate” applications from micro and small and medium enterprises spread across Lagos State. It began the test-run with a meeting with about 20 organisations, which it calls “Acquisition Partners”, with considerable experience in entrepreneurship, to seek recommendations of potential loans’ beneficiaries. The Fund’s Executive Secretary, Akin Oyebode said that those who are recommended to the Fund by these organisations would still have to apply “and go through the selection based on our clear guidelines which are on our website.” On 30 November, as part of the Pilot Scheme, the process was opened up to social media, for prospective applicants to download and fill the forms and return them to the fund’s office. Oyebode said that as at the evening of Friday (2 December), “the Fund has received 120 applications (and) we will stop receiving applications when we have 1,000 because it is a pilot scheme.” Lagos Governor, Akin Ambode, while signing the LSETF Bill into law, said the ₦25 billion Fund should help tackle the problem of unemployment through the granting of soft loans to individuals to make them self-employed and create wealth.
  • The Dangote Group has shut down its cement plant in Tanzania due to high energy costs and a technical glitch at the $500 million factory, according to a government source, who confirmed reports in Tanzanian media. Executives at Dangote Industries Tanzania have recently complained about the government’s failure to provide the company with cheap fuel and other logistical solutions. Dangote Cement had previously requested the government-owned energy company, the Tanzania Petroleum Development Corporation, to supply its Mtwara-based cement plant with natural gas at significantly subsidised prices – a request the government body turned down. Dangote Cement spends as much as $4 million on diesel every month powering its cement factory. “Our plant uses six million litres of diesel per month to run generators after the promises to supply it with natural gas, which is produced in a nearby gas field, failed to materialise,” Dangote Tanzania CEO, Harpeet Duggal, had told a group of politicians in October. Dangote’s plant was strategically built in Mtwara, in Tanzania’s southeastern region, to take advantage of cheap natural gas that is extracted in nearby fields. While the previous government led by former President Jakaya Kikwete had promised Dangote cheaper prices for natural gas, the TPDC under the government of President John Magufuli has refused to honour the agreement.